Dell denounces dividends — again

At tomorrow’s annual meeting, Dell shareholders will once again consider a proposal calling for the company to pay dividends.

I first wrote about the issue in 2006, when shareholder Linda Bush filed a proposal that garnered support from less than 10 percent of her fellow investors. Now, Bush and another shareholder, Paul Schwarzbach, a financial consultant in San Francisco, are submitting the proposal again.

Dell’s management, of course, opposes the measure as it did before, but in denouncing it, it resorts to the same tired arguments that date to Dell’s heyday: using buybacks is a better way to return value to shareholders and not paying a dividend allows the company to reinvest in growth opportunities.

“Michael Dell is stuck in 1998,” Schwarzbach said. “The company’s growth prospects are nothing like they were 10 years ago. There is no apparent benefit from what they’ve done with the cash that they generate.”

By Schwarzbach’s calculations, the company throughout its history has spent about $37 billion buying its own stock. Yet its market value is only about $31 billion.

Even more ironic: Dell has a habit of buying its own stock near market peaks. In other words, it overpays for itself.

“They have a track record of buying high and sitting on their hands,” Schwarzbach said.

Buybacks, though, are supposed to be done when management believes a company is worth more than its trading price.

At Dell, the buyback often were used to soak up the dilution from the hundreds of millions of dollars worth of options that Michael Dell and other executives exercised each year.

Michael Dell hasn’t sold shares in years. He’s no longer the Boy Wonder of personal computing. The manufacturing prowess that once enabled the Houston-born whiz-kid to trounce hometown rival Compaq and others has long faded.

Michael Dell is now just another middle-aged manager, with an accounting scandal and a decade of solid if lackluster performance.

While Dell talks of growth, it has invested hundreds of millions in manufacturing plants from North Carolina to Poland, only to shutter them a few years later as waning demand for computers made them obsolete.

If Dell’s board really cared about returning value to its shareholders, it would drop the tired growth-stock excuses.

Dell may not be the hot stock it once was, but it’s no dog. It still throws off plenty of cash, and while some of that needs to be reinvested in the business, much of it should be returned to shareholders through a dividend.